Section 2 Initiatives to capture markets

1．The emerging countries strategy With the relative size of Japan’s market shrinking compared to the global market, the importance of expanding into emerging economies is growing. Capturing demand in emerging economies is necessary in order to both enable Japanese companies to tap into growing worldwide demand and channel that wealth back into Japan and promote exports of goods and procurement of components and materials from Japan. Nevertheless, while there is a tendency to use the generic term “emerging economies”, the fact is that the situations differ from one region to another in terms of such matters as their degree of economic development, the extent of expansion into those regions by Japanese companies, and the competitive environment with companies from other countries. To tap into the growth of emerging economies to the greatest possible extent, it is necessary to promote strategic initiatives based on an understanding of the situation in each emerging economy.

(1) Policies and progress in each region Until now, market analysis has been conducted according to the classification of markets into the following three groups based on the Japan Revitalization Strategy 2013 (decided by the Cabinet in June 2013). (i) In China and ASEAN, Japanese companies have already established industrial clusters and supply chains on a substantial scale, thus the government has aimed to further tap into demand there through broader industrial expansion (“full expansion”) in consideration of the growth of consumer markets. (ii) In Southwest Asia, the Middle East, Russia/CIS, and Latin America, Japanese companies have lagged behind their U.S. and European counterparts in business expansion, thus the government has been strategically focusing intensive efforts on “achieving critical mass” in a select few promising sectors. (iii) Regarding Africa, the number of business bases established by Japanese companies that have expanded into the region: 657 (around 1% of business bases established by Japanese companies around the world), has been very limited, thus the government has been cultivating an environment that allows Africa to be positioned as a field for Japanese companies’ business expansion by creating as many examples of success as possible. Below, an overview of future policies and the current progress status by region will be provided.

(A) China China is the second largest economy in the world and is maintaining relatively high economic growth. Given that China is the largest trading partner for Japan and that many Japanese companies have already expanded into the country, it is important to further deepen the trade and investment relationship between the two countries and improve the business environment for Japanese companies. It is also important to support efforts to capture new markets by taking advantage of Japan’s strengths.

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Specifically, the government will improve the environment for mutually beneficial business cooperation at the private-sector level by promoting various consultations and exchanges at the government level, including the Japan-China-Republic of Korea (ROK) Trilateral Economic & Trade Ministers' Meeting and the Japan-China Energy Conservation and Environment Forum. In April 2015, Prime Minister Shinzo Abe and Chinese President Xi Jinping held the Japan-China Summit in Jakarta. In November of the same year, Prime Minister Abe and Chinese Premier Li Keqiang held the Japan-China Summit in Seoul, the ROK, and they affirmed that the two countries would further strengthen exchanges and cooperation in such areas as the economy. At the end of October, just before the summit, the Japan-China-Republic ROK Trilateral Economic & Trade Ministers' Meeting was held in Seoul for the first time in about three and a half years with the participation of Minister of Economy, Trade and Industry Motoo Hayashi, and an agreement was reached on further promoting initiatives to strengthen multifaceted cooperation, including the improvement of supply chain connectivity through facilitation of distribution and customs procedures. In addition, the Ninth Japan-China Energy Conservation and Environment Forum was held in Tokyo in November with the participation of Minister of Economy, Trade and Industry Hayashi and State Minister of Economy, Trade and Industry Yosuke Takagi in order to promote Japan-China cooperation in the fields of energy conservation and the environment. At this forum, 26 new cases of Japan-China cooperation were agreed upon, bringing the cumulative number of cases of such cooperation to 285.

(B) ASEAN In the ASEAN region, there are a variety of countries, ranging from those which face a lack of basic infrastructure and human resources for industry to those which have made significant progress in establishing industrial clusters but which are losing their cost advantage. In this region as a consumer market, the middle and wealthy classes are expected to grow further in the future, so the attractiveness of ASEAN as a whole is increasing. The government aims to strengthen the production network and capture the ASEAN market by supporting the improvement of the business environment, infrastructure development and economic integration, among other activities. For example, the efforts include support for country-by-country initiatives, such as infrastructure development and enhancement of transparency intended to improve the business and investment environments in Indonesia, a study on the infrastructure, energy mix and the development of the Dawei Special Economic Zone, which is necessary for achieving balanced development through a virtuous circle of activities in urban and rural areas and promoting industry in Myanmar, and Vietnam’s industrialization strategy which seeks to foster six strategic industries. The efforts also include the dissemination of the concept of the quality of infrastructure throughout the whole of ASEAN through ERIA. Efforts to capture markets in a wide range of industries are also needed. Such efforts include the improvement of the competitive environment through institutional development in the field of energy conservation in ASEAN. In addition, the government aims to capture markets by promoting the

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industrial advancement of ASEAN and the improvement of the business environment in services industries through the use of the framework of the ASEAN Economic Ministers and Minister of Economy, Trade and Industry of Japan Consultations - Economic and Industrial Cooperation Committee (AMEICC). In Myanmar, a joint Japan-Myanmar consortium was established in October 2013 to develop the Thilawa Special Economic Zone, with the groundbreaking ceremony taking place the following month and the opening ceremony held in September 2015. The public and private sectors are working together to develop infrastructure in the surrounding area and establish a one-stop service to provide support. In Indonesia, members of the public and private sectors in both countries have been moving forward with the Jakarta MPA (Metropolitan Priority Area), an initiative that seeks to improve the investment environment through measures including infrastructure development. At the Summit held in March 2015, after the inauguration of a new government in October 2014, an agreement was reached that the two countries will work together to improve the business and investment environments, develop infrastructure and implement economic and industrial cooperation under a new framework of cabinet-level dialogue involving both the public and private sectors. At the Japan- Indonesia Summit in November 2015, the leaders of the two countries announced cooperation concerning the development of quality infrastructure. In addition, to capture markets in a wide range of sectors, activities under the Cool Japan initiative in the ASEAN region have been strengthened.

(C) Southwest Asia Countries in Southwest Asia, including India, Bangladesh, Pakistan and Sri Lanka, are part of a region with one of the greatest potentials in the world because of such factors as their population size (the total population of these four countries is currently approximately 1.6 billion people and will expand to around 2 billion people by 2030 according to a certain estimate), GDP growth rate, and growing middle class, so it is very important for Japanese companies to capture markets there, including infrastructure projects. It is also important to strengthen economic relationships and industrial networks between Southwest Asian countries and the Asia-Pacific region. The government aims to strengthen the connectivity within the region by enhancing cooperation with Southwest Asia and the surrounding region through collaboration between the Regional Comprehensive Economic Partnership (RCEP), the Delhi - Mumbai Industrial Corridor and the Chennai-Bangalore Industrial Corridor. In India, the government of Prime Minister Narendra Modi, which was inaugurated in May 2014, has shown an active stance on inviting foreign capital, including inviting manufacturing industries under the “Make in India” initiative. At the Japan-India Summit that was held in September of the same year, when Prime Minister Modi visited Japan, an agreement was reached on matters that will contribute to further enhancement of the Japan-India economic relationship, including doubling of the amount of

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Japan’s foreign direct investments in India and the number of Japanese companies that have expanded into India within the next five years, and Japanese companies have high expectations for such initiatives. Furthermore, in December 2015, Prime Minister Abe visited India. An agreement was reached on the establishment of the Japan-India Make-in-India Special Finance Facility and the provision of a “special package” for the development of infrastructure (roads, electric power and water facilities, etc.) around Japanese industrial zones. Regarding Japanese industrial zones, Japan and India agreed last year on 12 candidate sites for such zones, thus the two countries will encourage Japanese companies’ investments in and business expansion into India by promoting a study on the development of infrastructure in the surrounding areas, the improvement of the investment environment, and incentives for investment. In addition, “Japan Plus” was established within the Government of India as an organization dedicated to supporting Japanese companies expanding into India. The Ministry of Economy, Trade and Industry and JETRO have dispatched personnel to Japan Plus, which provides support to around 20 to 30 Japanese companies expanding into India each month on average and resolves problems for companies already doing business there. In light of the strong powers granted to state governments, the Ministry of Economy, Trade and Industry signed memoranda of understanding with the states of Andhra Pradesh, Gujarat, Karnataka, Rajasthan, Maharashtra and Madhya Pradesh in order to strengthen cooperation with strategic states where Japanese companies are clustered. Through policy dialogue and other means established under these memoranda, Japan will strengthen cooperation with the Indian states in order to further improve the investment environment in India and encourage investment by Japanese companies through the promotion of individual projects. In particular, in the state of Andhra Pradesh (AP), located in southern India, the development of a new state capital, port facilities and industrial zones has proceeded rapidly, and there is a growing momentum to promote new industries in the state in addition to agriculture, which has traditionally been the main industry there. Under these circumstances, the Ministry of Economy, Trade and Industry and JETRO, together with relevant ministries, agencies and other organizations, have established the AP Commission for the Public and Private Sectors, which exchanges information with Japanese companies. From now on, the AP Commission for the Public and Private Sectors will be used as a platform for exchanges of information, networking and other activities that contribute to the sharing of information and the planning of potential projects in order to promote Japanese companies’ investment in and expansion into the state of AP by taking advantage of knowledge, experience and technologies possessed by Japanese companies in various projects, including the development of a new state capital, industrial cooperation, investment promotion and infrastructure development in the state. Bangladesh and Japan held joint public-private economic dialogue in Tokyo in April 2016. In order to promote Japanese companies’ expansion into and business activities in Bangladesh, discussions were held about the improvement of the business environment, industrial diversification, and human resource and skills development. An agreement was reached on establishing three working groups (tax and banking services, industrial diversification, and improvement of the investment environment), and it was decided that the two countries will periodically conduct follow-up review concerning their dialogue. Pakistan and Japan held joint public-private economic dialogue in November 2015. In the future,

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the two countries will steadily follow up on the New Frontier Action Plan (promoting investment through the improvement of the business environment and infrastructure development, formulating an auto industry policy, and promoting industrial technology cooperation) which was issued as a result of the economic dialogue. Among Japanese companies which have expanded into Pakistan, the proportion of profitable companies is relatively high compared with those which have expanded into other Asian countries. In order to support Japanese companies in expanding or maintaining market shares, the business environment will be improved so as to make it easier for them to conduct business activity. Regarding Sri Lanka, the government of President Maithripala Sirisena, which was inaugurated in 2015, has changed course from the excessive dependence on China of the previous government of President Mahinda Rajapaks, aiming to establish balanced relationships with the United States, Europe, Japan and India, among other countries. Sri Lanka plays an important role as a distribution hub linking East/Southeast Asia, South Asia and the Middle East/Africa and also provides good access to India. The government of Japan aims to promote trade and investment between the two countries while paying attention to Sri Lanka’s distinctive features, including the high growth rate of around 7% recorded by the country since the end of the civil war, the geographic advantage as represented by the presence of major hub ports such as Colombo Port, and a high-quality labor force with English proficiency. The Japan-Sri Lanka economic policy dialogue on which an agreement was reached when Prime Minister Ranil Wickremesinghe visited Japan in October 2015 will also be utilized.

(D) Russia/CIS The Russia/CIS region is rich in mineral and energy resources, including oil, coal, natural gas, uranium, rare metals and rare earth. On the other hand, the infrastructure built in the former Soviet era has been aging, so there are many projects to build new infrastructure and renew existing infrastructure. To promote such projects, there are growing needs from Japanese companies for the improvement of the investment environment. As power is concentrated in the hands of presidents and senior government officials in many countries, using an exchange of visits by important officials between Japan and the region as an opportunity to make top-level sales pitches is important. In particular, in the Russia/Central Asia region, the government will conduct appropriate follow-up review of projects at the Japan-Russia-Central Asia Exchange Promotion Meeting, which will be explained later, and at the same time, it aims to develop mutually beneficial economic relationships by using diplomatic occasions and steadily proceed with infrastructure and other economic projects. In November 2015, Minister of Economy, Trade and Industry Motoo Hayashi held a meeting with Minister of Economic Development Alexei Ulyukayev, and they affirmed that they would continue to cooperate in strengthening the Japan-Russia economic relationship and agreed to extend the period of the memorandum of understanding on cooperation concerning small and medium-size enterprises between their ministries. In February 2016, Minister of Economy, Trade and Industry Hayashi held a meeting with Minister of Industry and Trade Denis Manturov and signed a memorandum of

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understanding on periodically holding industrial policy dialogue at the high working level between their ministries in order to promote cooperation in the industrial field. As for the relationship with Central Asia, in June 2015, State Minister of Economy, Trade and Industry Daishiro Yamagiwa, accompanied by an economic mission, visited Turkmenistan and held a meeting with President Gurbanguly Berdymukhammedov and other officials. In addition, a business forum was held with the participation of around 100 people from Japan and Turkmenistan. In October 2015, Prime Minister Shinzo Abe, accompanied by an economic mission, made official visits to all five Central Asian countries (Turkmenistan, Tajikistan, Uzbekistan, Kirgizstan and Kazakhstan), becoming the first Japanese prime minister to do so, and held summit meetings with the presidents of those countries. In addition, in Turkmenistan, Uzbekistan and Kazakhstan, business forums and exhibitions of Japanese technologies were held. In order to prevent the results of the prime minister’s visit to Central Asia from being only temporary and to further promote exchanges between Japan and the region, it was decided that the former Japan-Russia Economic Exchange Promotion Meeting will be reorganized as the Japan-Russia- Central Asia Exchange Promotion Meeting and that relevant ministries and agencies will conduct appropriate follow-up review. As for the relationship with Ukraine, in June 2015, Prime Minister Abe visited the country, becoming the first incumbent Japanese prime minister to visit the country since its independence, and held a meeting with President Petro Poroshenko. The two leaders affirmed that the two countries will cooperate with each other in the introduction of highly efficient coal-powered thermal power generation technology. In addition, in the presence of the two leaders, Japanese Ambassador to Ukraine, Shigeki Sumi, and Vice Prime Minister and Minister of Regional Development, Building and Housing and Communal Services, Hennadiy Zubko, signed a letter concerning a Japanese ODA loan for repairing the Bortnychi Sewage Treatment Plant.

(E) Latin America Latin America is an important procurement source of natural resources. Therefore, Japan aims to capture the Latin American market under the strategy of continuing to secure the procurement of natural resources, tap into the growing middle class and expand the infrastructure business. The government will continue to follow up on Prime Minister Shinzo Abe’s visit to the region and deepen cooperation in fields including business expansion into the region by Japanese companies that contribute to the industrial diversification and human resource development in resource-rich countries in order to strengthen its relationship with the countries and secure stable sources of energy supply. Regarding the relationship with Mexico, in February 2015, Parliamentary Vice-Minister of Economy, Trade and Industry Yoshihiro Seki visited the country, and the Pacific Alliance Infrastructure Seminar was held. The seminar attracted intense attention, with around 140 people in attendance, including the undersecretary of trade at the Mexican Ministry of Economy. The Infrastructure Master Plan for the Pacific Alliance, which was formulated in FY 2013, was presented, and Parliamentary Vice-Minister of Economy, Trade and Industry Seki expressed hope that Japan’s public and private sectors, which possess

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a high level of technological capability, will contribute to infrastructure development in Mexico. In Brazil, the Third Japan-Brazil Joint Committee on the Promotion of Trade, Investment and Industrial Cooperation was held in September 2015. At the meeting, a follow-up review of Prime Minister Abe’s visit to Brazil was conducted, and opinions were exchanged concerning the improvement of the business environment in Brazil and industrial cooperation for the development of Japan and Brazil. It was confirmed that it is important for this committee to continuously hold meetings. Thus holding of interim meetings related to the committee was proposed. In February 2016, an interim meeting of the Japan-Brazil Joint Committee on the Promotion of Trade, Investment and Industrial Cooperation was held, and opinions were exchanged about Japan’s cooperation in the fields of smart community and healthcare, challenges for the improvement of the business environment in Brazil through the formulation of the AGIR (Action plan for Greater Investment Realization) and promotion of investments in the country. In March 2015, Minister of Economy, Trade and Industry Yoichi Miyazawa held a meeting with Vice-President Ricardo Cabrisas Ruiz the Council of Ministers of Cuba, and exchanged opinions with him concerning the promotion of investment from Japan, the revision of trade insurance and the development of the two countries’ future relationship based on the revision of the Foreign Exchange and Foreign Trade Act. In September 2015, Prime Minister Abe made an official visit to Jamaica, becoming the first Japanese prime minister to do so, and held a summit meeting with Prime Minister Portia Simpson Miller for the third time and for the third consecutive year. It was confirmed that the two countries will develop the Japan-Jamaica partnership and strengthen and promote cooperation in line with the three pillars of Japan’s policy towards CARICOM, which was announced at the 2015 Japan-CARICOM Summit Meeting. The three pillars are: (i) cooperation towards sustainable development including overcoming vulnerabilities particular to small island states; (ii) deepening and expanding bonds founded on exchanges and friendship; and (iii) cooperation in addressing challenges of the international community. In addition, Prime Minister Abe announced plans to provide technical cooperation in the fields of energy conservation and disaster management, support electric power projects in which Japanese companies are investing and develop human resources necessary for the management of electric power related to such projects.

(F) Middle East The Middle East is a region essential to stable energy supply for Japan. Therefore, Japan aims to cultivate markets and strengthen economic relationships with the region by participating in industrial diversification and huge infrastructure projects there. Specifically, the government will continue efforts to secure stable supply of energy through the LNG Producer-Consumer Conference, which was mentioned earlier, and other means. The government will also use an exchange of visits by important officials between Japan and the Middle East countries as an opportunity to further develop the economic relationship with the region through such means as export of infrastructure by Japanese companies

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Japan conducted frequent exchanges with Middle East countries as well in order to strengthen economic relationships. Regarding Iran, following the final agreement reached in July 2015 between EU3+3 (the U.K., France, Germany, the U.S., China and Russia) and Iran on the Iranian nuclear issue, State Minister of Economy, Trade and Industry Daishiro Yamagiwa, together with a delegation of Japanese companies, visited Iran in order to strengthen the economic relationship with the country. In January 2016, upon the arrival of the “implementation day” of the final agreement on the Iranian nuclear issue, Japan eased the series of measures that it had until then imposed, in accordance with resolutions adopted by the U.N. Security Council. Furthermore, in February 2016, Minister of Economic Affairs and Finance of Islamic Republic of Iran visited Japan and signed the Japan-Iran Investment Agreement. He also signed a memorandum of Cooperation concerning financing facility with Minister of Economy, Trade and Industry Motoo Hayashi. As for the relationship with Turkey, following a visit to Japan by President Recep Tayyip Erdoğan in October 2015, Prime Minister Shinzo Abe visited Istanbul and held the Japan-Turkey Summit in November ahead of the G20 Summit. In addition, the Japan-Turkey Business Forum (cosponsored by JETRO and the Foreign Economic Relations Board (DEIK)) was held, and JETRO signed a memorandum of understanding on strengthening relationship with Turkish economic organizations. In October 2015, State Minister of Economy, Trade and Industry Yosuke Takagi visited Turkey to attend the G20 Energy Ministers Meeting and the G20 Trade Ministers Meeting, and he also held a meeting with Minister of Economic Affairs of Turkey Nihau Zeybekci. In December 2015, Minister of Economy, Trade and Industry Motoo Hayashi used his visit to Kenya (to attend the WTO Ministerial Conference) as an opportunity to hold a meeting with newly appointed Minister of Economic Affairs Mustafa Elitas to exchange opinions about strengthening the investment and trade relationship and lobbied for Japanese companies’ further participation in infrastructure projects in Turkey. Regarding Israel, negotiations about a Japan-Israel investment treaty were started in May 2015 and a substantive agreement was reached in December of the same year. Moreover, based on the exchange of visits by important officials between Japan and Israel since 2014, the Ministry of Economy, Trade and Industry held the first Japan-Israel Economic Dialogue with the Israeli Ministry of Economy in July 2015. At the Dialogue, opinions were exchanged about a broad range of fields, including policies for promoting investment and trade between the two countries, cooperation in research and development (R&D) and cyber security and policies concerning venture businesses. In addition, JETRO opened a Japanese booth at CyberTech 2016 (in Tel Aviv), which was held in January 2016, providing participating Japanese companies with many business matching opportunities, and the Japanese participation in the trade fair was reported by various media. Regarding the Palestine, in February 2016, President Mahmoud Abbas visited Japan in February 2016, and the Palestine Business Forum (co-sponsored by JETRO, JICA and the Palestine Authority) was held with the participation of Minister of National Economy Abeer Odeh, who accompanied President Abbas on his visit to Japan. At the forum, the overview of the business environment in the Palestine, the ICT industry, which has achieved remarkable development in recent years, and the Jericho Agricultural Industrial Park, which is supported by JICA, was introduced to Japanese private companies. As for the relationship with Egypt, in February 2016, President Abdel- Fattah El-Sisi visited Japan and held the Japan-Egypt Summit, at which a joint statement concerning

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cooperation for the leap towards a new stage in bilateral relations was issued. On March 2, at the 10th Joint Conference of Egypt-Japan Business & Investment Seminar, 15 memorandums of understanding (MOUs) in such areas as electricity, energy and the Suez Canal area development were concluded, and a signing ceremony for a document concerning cooperation was held. In addition, there were active exchanges concerning cooperation in a broad range of fields based on cooperation concerning energy. In May 2015, Minister of Economy, Trade and Industry Yoichi Miyazawa held a meeting with visiting Saudi Arabian Minister of Economy and Planning Adel M. Fakieh and they confirmed that the two countries’ economic relationship will be strengthened. In January 2016, State Minister of Economy, Trade and Industry Yosuke Takagi visited Saudi Arabia and held meetings with major cabinet members. In their meetings, they confirmed that Japan and Saudi Arabia will make efforts to further develop their economic relationship. As for the relationship with Qatar, opinions were exchanged with the aim of further strengthening the economic relationship through stable supply of natural gas to Japan and other means on such occasions as the LNG Producer-Consumer Conference 2015 and the Japan-Qatar Joint Economic Committee, which were held during a visit to Japan by Minister of Energy and Industry Mohammed Bin Saleh Al-Sada in September 2015. In April 2015, Japan obtained rights to onshore oil fields in the UAE (Abu Dhabi) through a series of lobbying efforts made in consultations held during visits to the country by Minister of Economy, Trade and Industry Yoichi Miyazawa in January 2015 and by State Minister of Economy, Trade and Industry Yosuke Takagi in February of the same year, for example. In September 2015, Minister of Economy Saeed Al Mansouri visited Japan and held a meeting with Minister of Economy, Trade and Industry Yoichi Miyazawa, which provided a valuable opportunity to lobby for Japanese companies’ further participation in infrastructure projects. In November 2015 and January 2016, State Minister of Economy, Trade and Industry Yosuke Takagi visited the UAE and attended the world’s largest trade fairs, such as the ADIPEC (Abu Dhabi International Petroleum Exhibition and Conference) and the World Future Energy Summit (WFES). In his meetings with senior government officials, it was confirmed that Japan and Abu Dhabi will further promote cooperation in a broad range of fields, including energy. In May 2015, State Minister of Economy, Trade and Industry Daishiro Yamagiwa visited Kuwait and signed a memorandum of understanding with Kuwaiti Minister of Electricity and Water Ahmed Khaled Al-Jassar on cooperation in the fields of electric power and water. In November of the same year, State Minister of Economy, Trade and Industry Yosuke Takagi visited Kuwait and held meetings with Minister of State for Housing Affairs and Acting Minister of Public Works Yasser Hassan Abul and Undersecretary of the Ministry of Electricity and Water Mohammad Haji Ali Bushehri, which provided a valuable opportunity to lobby for Japanese companies’ further participation in infrastructure projects.

(G) Africa Africa is not only rich in natural resources but is also recording remarkable growth in terms of population size and GDP. Thus, it is an emerging market with high potential. Therefore, Japan aims to capture robust demand for infrastructure projects and develop new markets for consumer goods and other products.

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Specifically, making the most of TICAD VI, which is scheduled to be held in August 2016, Japan will promote investment in and trade with Africa through public relations activity to demonstrate Japanese products and technologies and discussions with various countries in the Plenary Session. The public and private sectors will work together to develop markets, offering support for companies eager to exhibit at international trade fairs and promote investment treaties aimed at improving the investment environment, in order to create as many examples of success as possible. Furthermore, to deal with risk in a manner that addresses the security situation and risk management, the government will further strengthen collaboration with diplomatic missions overseas and hold seminars on safety measures. In addition, the government will consider providing human resource development support and financial cooperation to resource-rich countries as necessary. When expanding into Africa, it is essential to take flexible actions, such as cooperating with African companies with existing commercial networks, establishing locally suited methods of sales, product development and business management, and forming partnerships with companies from third-party countries: including Europe and India, that have already expanded into the region in accordance with the circumstances, while also looking at the situation in the region. Regarding the doubling of the number of JETRO offices in Africa (from five to ten) over the next five years, which was among the measures aimed at contributing to Africa’s ongoing development as a trustworthy business partner that Japan announced at TICAD V in June 2013, new offices in Morocco and Ethiopia have been opened so far. In March 2016, the second Africa Investment Promotion Forum was held through JETRO. Leaders of investment promotion organizations from eight African countries (Cote d’Ivoire, Egypt, Ethiopia, Kenya, Morocco, Nigeria, South Africa and Tanzania) were invited to this forum and meetings intended to deepen cooperation with the investment promotion organizations from the invited eight countries were held. In addition, the leaders of the investment promotion organizations visited Japanese companies. To ensure stable supply of resources and secure participation in resource- and infrastructure-related projects, the second Japan-Africa Ministerial Meeting for Resources Development was held in May 2015 with a view to further strengthening relationships with resource-rich countries in Africa. For the details of the current status and future potential of the African market, see Part II, Chapter 4, Section 1, which analyzes those matters.

(2) Measures to support companies This section sets out the progress that has been made in implementing measures to support companies and future policy in this area.

(A) Enhancing top-level sales pitches and systems for inter-ministerial collaboration Table III-2-2-1 shows the top-level sales pitches undertaken by the prime minister and Cabinet members since the inauguration of the Abe administration

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Table III-2-2-1 Top-level sales pitches by the Prime Minister and Cabinet members (as of Feb. 2016)

* Underlining indicates accompanying by missions. Source: METI

All possible means – from top-level sales pitches by Prime Minister Shinzo Abe and Cabinet members to interaction at the private sector level – have been employed in a nationwide effort uniting the public and private sectors, with the aim of enhancing the environment for overseas expansion by Japanese companies, in order to secure resources and win contracts for infrastructure projects. For example, regarding Central Asia, Prime Minister Abe made official visits to all five Central Asian countries (Turkmenistan, Tajikistan, Uzbekistan, Kirgizstan and Kazakhstan) in October 2015, becoming the first Japanese prime minister to do so, and a total of 87 documents, including those concerning the public and private sectors, were signed. As a result, his visits to the region have contributed to Japanese companies’ cooperation and participation in projects to make effective use of the rich reserves of natural resources there. In the case of Cambodia and Laos, results were achieved during a visit there in April 2014 by the minister of economy, trade and industry, including agreements on promoting cooperation in the establishment of emergency and critical care centers using Japanese medical technology (Cambodia and Laos) and the development of an oil mining area (Cambodia) and the development of a hydroelectric power plant (Laos). It is vital to continue to identify potential by utilizing all possible policy tools, including top-level sales pitches, dispatch of missions, conclusion and revision of investment treaties and tax conventions, and provision of ODA, risk finance and technical cooperation.

(B) Conclusion and revision of investment treaties, tax conventions and social security treaties The government is promoting the conclusion of investment treaties in order to ensure a business environment conducive to stable operations by Japanese companies that have expanded overseas, in addition to safeguarding the assets in which Japanese companies have invested and abolishing barriers to expansion in those markets and repatriation of funds to Japan. Amid an increase in protectionist

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measures that discriminate against foreign capital: especially in emerging economies, the government has completed a series of negotiations with Southeast Asian countries concerning investment treaties and is now engaged primarily in negotiations with countries in the Middle East and Africa. In FY2015, Japan signed investment treaties with Oman in June and with Iran and Ukraine in February. Among treaties now under negotiation are those with Qatar, the United Arab Emirates, Ghana, Morocco and Tanzania (as of April 1, 2016). In addition, negotiations are also being conducted concerning investment chapters related to EPAs/FTAs, including RCEP and the Japan-China-ROK FTA. As the number of investment-related treaties concluded by Japan (investment treaties and investment chapters contained in EPAs/FTAs) is smaller than the numbers of treaties concluded by other major countries such as the United States, European countries, China and the ROK, it is necessary to further accelerate negotiations concerning investment-related treaties in consideration of the needs of Japanese companies and the circumstances of the counterpart countries. Moreover, it is hoped that concluding new tax conventions and revising existing ones to adjust the scope of taxable income on both sides will not only ensure the legal stability of the taxation of companies operating overseas but also contribute to facilitating the repatriation of income earned overseas by Japanese companies to Japan. In FY2015, the tax conventions with Qatar entered into force in December, and tax conventions were signed with Germany and India in December and with Chile in January 2016. It will be vital to expedite initiatives for upgrading and expanding the network of tax-related conventions that assist in supporting the overseas expansion of companies, taking into consideration the overall perspective in terms of the needs of Japanese industry and appropriate means of securing Japan’s right of taxation. Since its first social security treaty, concluded with Germany, entered into force in 2000, Japan put into force social security treaties with 15 countries and signed such treaties with four other countries by April 2016. In addition, Japan has gradually held intergovernmental negotiations and preliminary consultations with several countries (Figure III-2-1-2).

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Figure III-2-2-2 Conclusion of social security agreements (as of April 2016)

Source: Overview of Social Security Agreements, Ministry of Health, Labour and Welfare website

(C) Expansion of public finance programs In November 2015, as a follow-up to the "Partnership for Quality Infrastructure, the government announced a plan to implement a dramatic expansion and enhancement of public finance, including speeding up the procedures for Japanese ODA Loans; improving the Japanese ODA Loan and Private- Sector Investment Finance, including measures such as establishing new loan programs; strengthening cooperation with the Asian Development Bank; expanding the supply of risk money by JBIC; and enhancing the functions of Nippon Export and Investment Insurance (NEXI). For the details, see 2. “Exports of infrastructure systems,” (1) “Expansion of supply of risk money” in this section. In addition, in order to manage the trade insurance system more efficiently and effectively, the Act to Partially Revise the Trade Insurance and Investment Act and the Act on Special Accounts was enacted on July 10, 2015 (scheduled to enter into force on April 1, 2017) in order to provide for a transition of the status of NEXI, which is responsible for screening and underwriting concerning trade insurance, from an independent administrative agency to a special corporation wholly owned by the government.

(D) Deepening technical cooperation A market-oriented approach and efforts to resolve the challenges faced by emerging economies are required, as these will be the key to building win-win relationships with such economies. Therefore, in

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addition to supporting human resource development as it had already been doing, the government provided support for Japanese companies cooperating with local universities, research institutions, NGOs and companies in developing products and services that resolve local social challenges. Furthermore, the government formed communities of local people that were familiar with and friendly toward Japan by using online tools, including social network sites (SNS), and by holding business competition events in order to establish a network of people familiar with and friendly toward Japan, including former foreign students in Japan and former trainees of the Overseas Human Resources and Industry Development Association (HIDA). In addition to dispatching Japanese personnel as overseas interns, the government started to accept interns from abroad in order to support Japanese companies’ development of new businesses in developing countries.

2．Export of infrastructure systems As described above, it will be necessary in the future to further develop demand in growth regions, including Africa, India and ASEAN, while taking into consideration changes in the economic situation, such as the slowdown of China’s economic growth. In particular, in these emerging markets, as demand for infrastructure is expected to grow huge in line with rapid economic growth and urbanization, it is important for the public and private sectors to work together to promote exports of quality infrastructure, an area of strength for Japan. In this section, an overview of future initiatives to capture demand for infrastructure in growth regions will be provided.

(1) Expansion of supply of risk money First, in order to meet immense demand for infrastructure in emerging countries, a vast amount of funds is necessary. Therefore, in May 2015, Prime Minister Shinzo Abe announced the "Partnership for Quality Infrastructure and set forth the goal of realizing sufficient infrastructure investments in both quality and quantity by cooperating with the Asian Development Bank: whose functions have been enhanced, to provide a total of approximately 110 billion dollars over five years,and by using this as a catalyst for the mobilization of private-sector funds and knowhow. In addition, in November of the same year, as a follow-up to the Partnership for Quality Infrastructure, Prime Minister Abe expressed his readiness to further promote investment in quality infrastructure by announcing a dramatic enhancement of the program. Described below are major enhancement measures.

(A) Expansion of the amount of assistance and speedup of procedures In order to make assistance from JICA more attractive, the government decided to implement 12 items of improvements concerning the Japanese ODA Loan and overseas loan and investment programs, including the following measures. (a) Speedup of governmental procedures for the Japanese ODA Loan program The government decided to shorten the period of governmental procedures required for the Japanese ODA Loans program, which is usually around three years to around one and a half years at a minimum

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for important projects and to around two years at a minimum for other projects. (b) Establishment of new loan programs In order to enhance the convenience of Japanese ODA Loans, the dollar-denominated ODA Loan and High-spec Loan programs were established. In addition, the Japanese ODA Loans for business/management rights program, pilot/test-marketing projects and special contingency reserves were introduced. With respect to overseas investments and loans, co-finance with private financial institutions was made possible, and the interpretation of the requirement of “no-precedent policy” was reviewed. At the same time, it was decided that in principle, the appraisal process should be started within one month from the application from private companies, etc and that the standard period for JBIC to respond to inquiries on projects should be two weeks. (c) Exceptional exemption of local governments and public corporations from the government guarantee requirement In providing Japanese ODA Loans directly to local governments and public corporations (sub- sovereign entities) of developing countries, the government decided to exempt the government guarantee requirement as an exception on a case-by-case basis at a ministerial conference if various conditions, including economic stability of recipient countries and sufficient commitment by recipient governments, are met. (B) Collaboration with the ADB A new trust fund will be established under the ADB through JICA’s investment, and it will invest in and finance private quality infrastructure projects through measures such as public-private partnership (PPP), aiming for investments and loans totaling up to 1.5 billion dollars over the next five years. Regarding public infrastructure development, JICA, in collaboration with the ADB, will support long-term assistance plans and provide technical cooperation and loans for sovereign projects. JICA and ADB will aim to co-finance 10 billion dollars over the next five years. (C) Measures to increase the supply of funding for projects with relatively high risk profiles through JBIC, etc. In order to further support Japanese companies’ overseas expansion concerning infrastructure projects using private funds and know-how, the government has made it possible for JBIC to more actively take risks by adding the Specially Designated Operations to JBIC’s operations. Through the Specially Designated Operations, JBIC will make investments in and provide loans to overseas infrastructure projects which have a sufficient level of expected return but which involve high risks. JBIC will also introduce long-term borrowing from local financial institutions as a means to obtain local currency so that it can expand the Local Currency Loans that are in high demand for use in infrastructure projects in developing countries. In addition, JBIC will introduce new assistance tools for overseas infrastructure projects (e.g. two-step loans to banks involved in overseas infrastructure projects, acquisition of bonds (project bonds), and Islamic finance). Concerning Nippon Export and Investment Insurance (NEXI), in light of the growing scale and lengthening duration and the high risks involved in overseas infrastructure projects, the government decided to implement eight items of improvement in response to the diverse needs from countries introducing infrastructure and requests from companies. The improvements include the significant

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extension of the investment insurance period (from the current 15 years to 30 years), the establishment of dollar-denominated trade and investment insurance, active involvement in projects related to local governments and public corporations (sub-sovereign entities) which are not covered by government guarantees (establishment of an insurance program for sub-sovereign entities), and the provision of 100% coverage of country risks (countries risks including wars and acts of terrorism). In addition, in order to contribute to meeting the growing global demand for infrastructure in regions outside Asia as well by exporting Japan’s quality infrastructure, Prime Minister Abe announced the Expanded Partnership for Quality Infrastructure” initiative in May 2016. At the G7 Ise-Shima Summit, the Prime Minister also expressed Japan’s intention to make further contributions to the development of quality infrastructure through this initiative. The main contents of the initiative are as described below. The government will promptly implement individual measures under the initiative.

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human resources development (C) Strengthening the institutional capacity of and ensuring the financial foundation of relevant organizations, including JICA, JBIC, NEXI, and JOGMEC

(2) Strategic human resource development, and involvement in projects from the upstream stage Even if Japan enhances the attractiveness of its financing assistance, it will be difficult to capture infrastructure business if quality infrastructure – an area of Japan’s strength – which is of high quality in terms of economic rationality as seen from the viewpoint of lifecycle costs, safety, resilience and environmental and social considerations, for example, fails to be appropriately evaluated because countries introducing infrastructure place emphasis only on the initial cost at the time of procurement. Therefore, the government, in cooperation with industry, will develop an environment that enables quality infrastructure to be appropriately evaluated by strategically developing human resources through such measures as inviting top government officials from countries which are particularly important infrastructure markets or by training middle-ranking officials in charge of planning and evaluation in such countries. In order to survive intense international competition to win infrastructure contracts, approaching governments of infrastructure-introducing countries before the formulation of projects is effective. Therefore, the government will increase the chance for Japanese companies to win contracts by demonstrating Japan’s technological superiority and reliability from the upstream stage through support for the formulation of master plans and feasibility study (F/S) as well as policy dialogue.

(3) International standardization of quality infrastructure In order to lay the foundation for widespread diffusion of quality infrastructure in emerging countries and other infrastructure-introducing countries, the government is striving for international standardization of such infrastructure in addition to making approaches to individual countries. For example, at the G7 Ise-Shima Summit, which was held in May with Japan as its chair, the G7 countries adopted the G7 Ise-Shima Principles for Promoting Quality Infrastructure Investment in light of the frequent references so far made to the importance of quality infrastructure that will lead to inclusive growth of developing countries under various international frameworks, including G7, G20 and APEC. The principles are (i) ensuring effective governance, reliable operation and economic efficiency in view of life-cycle costs as well as safety and resilience against natural disasters, terrorism and cyber-attack risks, (ii) ensuring job creation, capacity building and transfer of expertise and know- how for local communities, (iii) addressing social and environmental impacts, (iv) ensuring alignment with economic and development strategies including the aspect of climate change and the environment at the national and regional levels, and (v) enhancing effective resource mobilization including through PPP. In the future, the government will encourage countries outside the G7 and multilateral development banks (MDBs) to make infrastructure investments that are in line with these principles. At APEC, legal systems related to infrastructure development investments in individual economies will be reviewed from the viewpoint of the quality of infrastructure, and a program to provide capacity building assistance in accordance with the needs for such assistance identified through the review will

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be established and implemented from this year based on a Japanese proposal. APEC is also formulating evaluation benchmarks and guidelines for the methods of measurement that are intended to ensure the quality of power generation facilities under Japan’s initiative with the aim of diffusing quality electric power infrastructure in the Asia-Pacific region, an area where electric power demand is expected to grow significantly in the medium to long term. The guidelines will be prepared by the end of the current fiscal year, and capacity building assistance intended to diffuse them will be implemented. In addition, a study on the formulation of an international standard based on the guidelines will be conducted.

(4) Strengthening the competitiveness of Japanese companies undertaking exports of infrastructure If Japanese companies are to win more contracts for infrastructure projects amid the intensifying competition for such contracts, as exemplified by European companies’ growing market share in Asia and the rise of emerging-market players, they need to strengthen their price competitiveness and increase their manufacturing and designing capacities sufficiently to meet the immense demand and to adapt to infrastructure-introducing countries’ policies that give preferential treatment to or encourage the use of domestically manufactured products. Local production in infrastructure-introducing countries is an effective measure to do so. Therefore, the Ministry of Economy, Trade and Industry is devoting efforts to strengthening relationships with infrastructure-introducing countries through intergovernmental dialogue and other means and improving the business environment, among other activities. For example, in India, where strong powers are granted to state governments, the Ministry is strengthening relationships not only with the central government but also with state governments by signing memoranda of understanding on cooperation with strategic states and engaging in policy dialogues. In addition, the Ministry is encouraging Japanese companies to expand into India by developing Japanese industrial zones and improving the business environment through Japan Plus, which was established within the government of India (see Section 2.1. “Emerging markets strategy”). Furthermore, the government will support Japanese companies’ fund-raising for local production and sales through public finance programs. The government will also support training of core local personnel engaging in such work as procurement, designing, manufacturing, operation, maintenance and management at Japanese companies’ local business bases through acceptance of trainees and dispatch of experts, because developing and securing human resources is a critical challenge at such bases. It is essential for Japanese companies to strengthen their competitiveness while making use of these measures, thus the public and private sectors will continue to work together to promote these measures.

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